@Warrigals @denk12 Thanks to you both for the commentary - as a...

@Warrigals
@denk12

Thanks to you both for the commentary - as a newbie IMF groupie, I like hearing from hardened IMF holders who understand the business better than myself.

Can I ask you both: what sort of disclosure do you expect, and if you were to receive the disclosure you expect, how would you use it to determine the value of IMF?

My thoughts on IMF's disclosure are basically as follows:

1. It's admittedly scant upfront as you rightly point out, but in hindsight it's very good and granular - they update their audited track record every 6 months, and every year in their annual reports they disclose the investment outcome of each major case with key details (ie time taken to resolve, how much was spent, and how much came back)

2. Even if they were to significantly overhaul their upfront disclosure, I don't think it would materially impact my ability to value the business. Let's say they all of a sudden started to announce very granular details of each funding agreement (ie their commitment, their return hurdles / settlement sharing arrangement, expected time to resolution) - something that they could never do because these agreements are confidential between the plaintiffs and IMF - we, as lay people, would still be required to estimate the likelihood of that case winning, and we would have to sensitize for time to settlement assumptions, before we could accurately deduce what the likely probabilistic future cash flows are from each new funding agreement. That is a futile exercise, in my lay opinion - with IMF, I think we are really in the same boat as all other shareholders in all other companies, insofar as management are spending money on our behalf (ie investing in cases), and we simply have to use history as a guide to determine at what return that capital spend is going to come back. I'm not aware of any company on the ASX that basically provides to investors its full underwriting assumptions for each dollar of capex spend - it is always, to varying extents, a "trust me" exercise.

With that said, the way I think about IMF is: based on what we know, what MOIC into perpetuity is current market price implying? Based on my back of envelope workings, current market pricing implies a perpetual MOIC of about 1.6x - I deduce this by assuming they spend the $120m target in FY18 and get 1.6x back two years hence (so $70m gross profit), less $35m corporate overhead gives $35m FY20 EBIT, which equates to around a 7-8x FY20 EBIT multiple on today's EV, and I think a 7-8x EBIT multiple is about right for this business. Said another way and all other things being equal, I think current market pricing is implying a perpetual 40% investment underperformance by IMF, given they target a 2x MOIC. Now, the market may well be right here - perhaps IMF management are dreadful at picking winners, or perhaps increasing competition in their space is going to obliterate their margins. But whatever the case may be, I don't think our ability to assess the likelihood of those implied market assumptions materially improves, even if they were to provide almost complete disclosure upfront (which they can't do as the minutiae of financing agreements are confidential).